Not enough markets to sustain an invisible hand metaphor

Abstract

The invisible hand metaphor dates to the 18th century but only gained prominence after neoclassical analysis came to dominate economic thinking late 19th century. Neoclassical economists rigorously established the assumptions necessary for an economy to operate in accordance with the metaphor, including that all economic activity passes through efficient markets. But, real markets are never efficient or even competitive, and most provisioning occurs outside markets in households, social settings, business organisations, and government. Yet, mainstream economics continues to model the economy in accordance with the metaphor. This paper delegitimises the metaphor by means of a simple exercise, easily understood by beginning economics students, to use wide-ranging inter-disciplinary evidence to estimate the percentage of human economic interactions that occur in competitive markets. Conclusion: the proportion of human economic interactions carried out in competitive markets is much too small for the invisible hand metaphor to accurately describe an economic system.